Chapter 2
Issues
2.1
The committee received evidence from academics, state and territory
government representatives, industry representatives and the Commonwealth
Department of Infrastructure and Regional Development. All were broadly
supportive of the measures proposed in the bill, approving of measures designed
to increase the transparency and rigour of IA's assessment of project proposals,[1]
and its ability to effectively operate as an independent advisory body.[2]
2.2
Professionals Australia considered the bill 'a firm step in the right
direction' towards ensuring 'proper independent assessment' of infrastructure
proposals.[3]
The South Australian Department of Planning, Transport and Infrastructure
agreed with the general principles underpinning the bill.[4]
Similarly, representatives of the Queensland government endorsed the bill,
noting that it 'aligns strongly' with the state's commitment to infrastructure
management.[5]
2.3
However, while broadly supportive of the policy intent, there was some
confusion about the details and practical effect of the amendments to the cost
benefit analysis requirements.[6]
Submitters also offered suggestions to improve implementation of the proposed
amendments,[7]
and held strong views about IA's cost benefit analysis methodology.[8]
A cost benefit analysis for every project proposal?
2.4
There is strong support throughout the submissions for cost benefit
analyses to be conducted for nationally significant infrastructure project
proposals that would entail Commonwealth funding of at least $100 million. This
support was shared by representatives of state governments,[9]
industry representatives,[10]
and academia.[11]
2.5
The South Australian Department of Planning, Transport and Infrastructure
'acknowledge[d] the important role played by cost-benefit analysis in deciding
whether to proceed with the proposed investment'.[12]
Professor Peter Newman AO and Mr James McIntosh argued that cost benefit
analyses would 'lead to better decision-making', and noted, with approval, that
the proposed amendments would expand the range of project proposals for which a
cost benefit analysis would be required.[13]
2.6
However, submitters questioned whether the proposed amendments would make
it compulsory for cost benefit analyses to be conducted for all nationally
significant infrastructure project proposals involving funding of at least $100
million. While broadly supportive of the legislation, Professionals Australia called
for further amendments to ensure that Infrastructure Australia '[b]e empowered
to require cost benefit analysis for all Federal government infrastructure
capital expenditure over $100 million.[14]'
2.7
Submitters also questioned whether the bill would require IA to evaluate
and undertake a cost benefit analysis of project proposals before the
Commonwealth could commit to fund an infrastructure proposal.[15]
A number of submitters strongly argued that the efficient administration of
Australia's infrastructure resources requires IA to conduct cost benefit
analyses before any Commonwealth funds are committed to infrastructure
projects.[16]
Professionals Australia called for amendments to the bill to ensure that IA
would:
[b]e in a position where cost benefit analyses are conducted
and reviewed prior to funding decisions being made and have their
infrastructure project list held up as the primary pathway for project
selection.[17]
2.8
These issues were the subject of debate during the bill's consideration
before the House of Representatives. Non-government amendments were put forward,
but not adopted, to introduce a 'uniform process' across all project proposals
that would involve at least $100 million of Commonwealth funding.[18]
Specifically, the amendment contemplated that IA be required to publish cost
benefit analyses for all proposals involving capital expenditure of $100
million or more.[19]
In opposing the proposed non-government amendments, the Deputy Prime Minister,
the Hon. Warren Truss MP, confirmed advice provided in the
explanatory memorandum to the bill, and the Minister's second reading speech,
that the amendments were designed to 'ensure that cost benefit analyses inform
the evaluation of proposals under the IA Act'.[20]
The Minister informed the House:
It is certainly the government's intention that all projects
for which we are contributing funding of $100 million or more will be subject
to Infrastructure Australia's approval. The exception to this is Defence – we
have made that quite clear right through the process – but the intention is
that Infrastructure Australia will have the ability to make its own decisions
and that every project will be submitted to it...The purpose of the changes is to
make sure that Infrastructure Australia can do that in a way that they are
ahead of the decision-making process.[21]
Committee view
2.9
Cost benefit analyses are designed to ensure that infrastructure project
decisions are made on the basis of the best available evidence. The analyses
support the transparent and robust scrutiny of infrastructure proposals. The
committee is aware that in developing Infrastructure Plans (IPs) IA takes into
account audits, evaluations of project proposals, and the IPL. IPs are the end
result of a broader analytical process. It therefore makes sense to relocate
the cost benefit analysis provisions to link cost benefit analysis to the IPL
rather than Infrastructure Plans. This will not detract from the value of
Infrastructure Plans. Rather, it will increase their veracity, as the proposed
amendments would allow Infrastructure Plans to benefit from the extensive work
undertaken by IA to analyse the cost benefits of all project proposals rather
than just the ones that are considered potentially suitable for inclusion on a
15 year plan.
2.10
The committee understands submitters' confusion as to whether the
proposed amendments would require cost benefit analysis of every infrastructure
proposal of national significance that would require federal investment of at
least $100 million. The drafting of the proposed amendments is circuitous.
It creates an implicit, incidental requirement to conduct a cost benefit
analysis rather than an express direction for cost benefit analyses to be
conducted in every case. The amendments would not expressly confirm that cost
benefit analyses are a routine part of project analysis. Rather, the proposed amendments
would make cost benefit analyses a threshold requirement for a project to be
proceed to the next stage, that is, inclusion on an IPL.
2.11
However, despite the drafting of the proposed amendments, it is clear
that the amendments intend to promote robust scrutiny of proposed
infrastructure projects. As the Deputy Prime Minister has stated, and as
reiterated in the bill's explanatory memorandum, the proposed legislative
reforms are intended to ensure that cost benefit analyses inform IA's
evaluation of proposals. Furthermore, given Infrastructure Australia's
practice of including project proposals that it considers to be nationally
significant on the Infrastructure Priority List, it can be assumed that in
practice cost benefit analyses would be routinely undertaken. Indeed, as both
the Government and submitters to this inquiry have noted, this is currently
IA's practice. The proposed amendments would confirm this practice, giving cost
benefit analyses a legislative foundation.
2.12
Therefore, the committee is satisfied that, as currently drafted, the
bill would result in IA undertaking cost benefit analyses as part of the
process of evaluating proposals for nationally significant infrastructure
projects that would involve significant Commonwealth expenditure.
2.13
The committee also notes the Government's advice that '[i]t is certainly
the Government's intention that all projects for which we are contributing
funding of $100 million or more will be subject to Infrastructure
Australia's approval'.[22]
The object of the bill is to improve transparency. To this end, the bill would
establish a framework for not only ensuring that cost benefit analyses are
undertaken but that the outcomes of these analyses are available to government
and the public.
Cost benefit analysis and IA's capacity to providing early feedback
2.14
One submitter raised concerns with the potential impact of the proposed amendments
to the cost-benefit analyses framework on projects at an early stage of
development. The South Australian government advised that IA may not
undertake cost benefit analyses of proposals that it considers to be in the
early stage of development. That is, a proposal may be listed on the
Infrastructure Priority List as an 'early stage' project without a cost benefit
analysis first being conducted. IA's Guidelines for making submissions to
Infrastructure Australia’s infrastructure planning process, through
Infrastructure Australia's Reform and Investment Framework do distinguish
between projects in the early stages of development and projects that are more
advanced. The guidelines make clear that for less-developed projects less
detail is required in the accompanying documentation and information
statements. The guidelines advise:
[W]here a submission seeks engagement with Infrastructure
Australia as a business case is developed – that is, the initiative is at an
early stage of planning - Infrastructure Australia welcomes such engagement and
the supporting information should be in accordance with the initiative’s stage
of development and need not necessarily cover all the elements described here.[23]
2.15
It was submitted that this process 'has been beneficial in allowing
jurisdictions to get an early indication from IA of its assessment of the
strategic merits of the proposal'. The South Australian government submitted
that if the requirement to conduct a cost benefit analysis of a proposal before
it is listed on the Infrastructure Priority List proceeds, 'we suggest a
mechanism remain for IA to provide early feedback on the strategic merits of
proposals, even before CBA work is undertaken'.[24]
Committee view
2.16
It is of particular note that cost benefit analyses were undertaken
prior to the introduction of the bill. The bill seeks to solidify and enhance
an existing process, not to detract from it. The committee understands the
importance of early engagement with Infrastructure Australia. It is not the
purpose of the bill to limit this engagement. Indeed, it is not clear that the
proposed amendments would have this effect. While the bill would prevent a
proposal from being included on the Infrastructure Priority List without a cost
benefit analysis first being conducted, it would not prevent IA from liaising
with proposal submitters during the evaluation process. This would allow the IA
to provide early feedback on the strategic merits of proposals before a cost
benefit analysis was undertaken. It is suggested the government monitor this
issue with Infrastructure Australia, and, if needed, issue ministerial
directions under section 6 of the Infrastructure Australia Act 2008 to
clarify that the IA may provide early feedback on projects that are at an early
stage. The committee will also monitor this issue.
Cost benefit analyses – methodology and uniformity
2.17
The bill as drafted would allow IA to approve the methodology for
preparing cost benefit analyses. However, it would not have total autonomy in
developing the methodology. The proposed amendments would require IA to choose a
methodology that would allow proposals to be compared. In itself, this
requirement is not new but reflects existing requirements under section 5B of
the Infrastructure Australia Act 2008 relating to cost benefit analysis
requirements for the proposals in Infrastructure Plans. As previously stated,
the bill would not fundamentally change the cost benefit analysis process. The
amendments would alter the stage at which the cost benefit analysis process
would occur. The Senate has therefore previously approved the IA having the
flexibility to determine, subject to the requirement to enable comparisons, the
cost benefit analysis methodology.
2.18
Submitters held strong views about the evaluation methodology. Several
put forward suggestions for what the CBA methodology should include.
Transparency, uniformity and stability were key themes explored in submissions.[25]
The Bus Industry Conference noted that it:
strongly supports the adoption of a single and stable method
for evaluation of land transport infrastructure that considers fully the
external benefits and costs of infrastructure projects.[26]
2.19
The organisation advocated for a set methodology to be applied to every
proposal, so as to avoid the risk of manipulation[27]
Other submitters also identified a need for one consistent methodology,[28]
arguing that consistency across project evaluations is in line with, and is
indeed a key feature of, the requirement that the methodology allow projects to
be compared.[29]
While noting the need for uniformity, the Northern Territory Government also maintained
that cost benefit analyses must be appropriate for rural and regional Australia
was well as urban centres.[30]
2.20
In addition, submitters called for a whole of government approach, that
is, consistency of evaluation methods between Commonwealth organisations and
Commonwealth, state and territory bodies.[31]
Representatives of the South Australian Government noted that key aspects of
Infrastructure Australia's funding submission requirements differ to those
required by the Commonwealth Department of Infrastructure and Regional
Development.[32]
The Bus Industry Conference also submitted that there is a need for a standardised
approach to evaluating infrastructure proposals for which Commonwealth funding
is sought.[33]
2.21
Where mentioned, submitters also shared the view that cross-jurisdictional
consistency is required. The Northern Territory Government and the South
Australian Government both argued for Infrastructure Australia's methodology to
be aligned with guidelines in other jurisdictions.[34]
Representatives of the Northern Territory Government submitted:
[i]t would be entirely appropriate for Infrastructure
Australia to take the national lead, working with Federal, State and Territory
governments, to develop the CBA into a single national project appraisal
methodology that is accepted and supported by all jurisdictions.[35]
2.22
This view was shared by representatives of private industry. The
Australian Sustainable Built Environment Council called for a 'whole-of-government
approach to project appraisals, supporting consistency and best practice across
the states and territories.' The council further submitted that a cross-government
cost benefit analysis framework should include 'clear recommendations and next
steps...to support its implementation'.[36]
Committee view
2.23
As noted, the bill would not change the current position that
Infrastructure Australia develop, and review, its cost benefit analysis
methodology. It is fundamental to IA's transparency and independence that it
establishes the method of evaluating the cost-benefits of a proposal. However,
the committee recognises the burden that jurisdictional differences can place on
private industry. The committee strongly encourages IA to take account of the
concerns raised by submitters to this inquiry in determining processes and
methodologies to make the project evaluation process more transparent and
accessible.
Recommendation 1
2.24
The committee recommends the bill be passed in its current form.
Senator the Hon Bill Heffernan
Chair
Navigation: Previous Page | Contents | Next Page